FEDERAL TRADE COMMISSION (FTC)

The Federal Trade Commission (FTC) was established as an independent
administrative agency pursuant to the Federal Trade Commission Act of
1914. The purpose of the FTC is to enforce the provisions of the Federal
Trade Commission Act, which prohibits "unfair or deceptive acts or
practices in commerce." The Clayton Antitrust Act (1914) also
granted the FTC the authority to act against specific and unfair
monopolistic practices. The FTC is considered to be a law enforcement
agency, and like other such agencies it lacks punitive authority. Although
the FTC cannot punish violators—that is the responsibility of the
judicial system—it can issue cease and desist orders and argue
cases in federal and administrative courts.

Today, the Federal Trade Commission serves an important function as a
protector of both consumer and business rights. While the restrictions
that it imposes on business practices often receive the most attention,
other laws enforced by the FTC—such as the 1979 Franchise Rule,
which directed franchisors to provide full disclosure of franchise
information to
prospective franchisees—have been of great benefit to
entrepreneurs and small business owners. Basically, all business owners
should educate themselves about the guidelines set forth by the FTC on
various business practices. Some of its rules can be helpful to small
businesses and entrepreneurs. Conversely, businesses that flout or remain
ignorant of the FTC's operating guidelines are apt to regret it.

CREATION OF THE FTC

The FTC was created in response to a public outcry against the abuses of
monopolistic trusts during the late 19th and early 20th centuries. The
Sherman Antitrust Act of 1890 had proven inadequate in limiting trusts,
and the widespread misuse of economic power by companies became so
problematic that it became a significant factor in the election of Woodrow
Wilson to the White House in 1912. Once Wilson assumed the office of the
Presidency, he followed through on his campaign promises to address the
excesses of America's trusts. Wilson's State of the Union
Message of 1913 included a call for extensive antitrust legislation.
Wilson's push, combined with public displeasure with the situation,
resulted in the passage of two acts. The first was the Federal Trade
Commission Act, which created and empowered the FTC to define and halt
"unfair practice" in trade and commerce. It was followed by
the Clayton Antitrust Act, which covered specific activities of
corporations that were deemed to be not in the public interest. Activities
covered by this act included those mergers which inhibited trade by
creating monopolies. The FTC began operating in 1915; the Bureau of
Operations, which had previously monitored corporate activity for the
federal government, was folded into the FTC.

The FTC is empowered to enforce provisions of both acts following specific
guidelines. The offense must fall under the jurisdiction of the various
acts and must affect interstate commerce. The violations must also affect
the public good; the FTC does not intervene in disputes between private
parties. As noted, the FTC lacks authority to punish or fine violators,
but if an FTC ruling—such as a cease and desist order—is
ignored, the FTC can seek civil penalties in federal court and seek
compensation for those harmed by the unfair or deceptive practices.

Since 1914 both the Federal Trade Commission Act and the Clayton Act have
been amended numerous times, thus expanding the legal responsibilities of
the FTC. Some of the more notable amendments are:

Lanham Trademark Act of 1946—This act required the registration
and protection of trademarks used in commerce

Fair Packaging and Labeling Act of 1966—This act legislated
against unfair or deceptive labeling and packaging

Truth in Lending Act of 1969—This legislation offered increased
protection to consumers by requiring that companies provide full
disclosure of credit terms and limit consumer liability concerning
stolen credit cards; it also established regulations for advertising for
credit services

Magnuson-Moss Warranty-Federal Trade Commission Improvement Act of
1975—This legislation expanded the authority of the FTC by
allowing it to seek redress for consumers and civil penalties for repeat
offenders. It also increased the FTC's authorization to pursue
violations "affecting commerce" rather than violations
"in commerce." This was an important distinction. Under
the terms of the act, manufacturers are not required to warrant their
products but if they do they must specify whether their warranties are
"full" or "limited." The law also introduced
rules requiring businesses to explain any limitations on warranties in
writing

FTC Franchise Rule of 1979—This rule requires franchisors to
provide prospective franchisees with a full disclosure of relevant
information about the franchise

Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994—This law, commonly referred to as the "Telemarketing
Sales Rule," was put together in response to widespread consumer
complaints about fraudulent and/or bothersome telemarketing practices.
The act imposed meaningful curbs on such activities. Among the
restrictions imposed by the legislation were specific identity
disclosure requirements, prohibitions on misrepresentations, limitations
on time during which telemarketers can make their calls, prohibitions on
making calls to consumers who specifically ask not to be called,
restrictions on sales of certain goods and services, and new
recordkeeping requirements. The FTC and many consumer and business
advocates, however, contend that FTC penalties for deceptive
telemarketing practices are insufficent to meaningful curtail such
activities. They are currently engaged in efforts to increase the size
of FTC fines and support stiffer penalties (including jail time) for
offending parties.

In recent years, the Federal Trade Commission has also turned its
attention to Internet commerce. Specifically, it is, in conjunction with
Congress, exploring the possibility of issuing rules to companies
regulating their handling of personal data and other Internet privacy
issues. For much of the 1990s, the FTC favored self-regulation in this
area. But a 2000 survey conducted by the FTC found that only 20 percent of
major e-commerce sites mets the agency's standards for consumer
privacy protection. These findings, coupled with widespread concerns in
both the public and private sectors about Internet security, may
eventually trigger the creation of new FTC regulations for companies that
operate electronic business sites.

FTC BUREAUS

The FTC is administered by a five-member commission. Each commissioner is
appointed by the President for a seven-year term with the advice and
consent of the Senate. The commission must represent at least three
political parties and the President chooses from its ranks one
commissioner to be chairperson. The chairperson appoints an executive
director with the consent of the full commission; the executive director
is responsible for general staff operations.

Three bureaus of the FTC interpret and enforce jurisdictional legislation:
the Bureau of Consumer Protection, the Bureau of Competition, and the
Bureau of Economics.

BUREAU OF CONSUMER PROTECTION
The Bureau of Consumer Protection is charged with protecting the consumer
from unfair, deceptive, and fraudulent practices. It enforces
congressional consumer protection laws and regulations issued by the
Commission. In order to meet its various responsibilities, the Bureau
often becomes involved in federal litigation, consumer, and business
education, and conducts various investigations under its jurisdiction. The
Bureau has divisions of advertising, marketing practices, credit, and
enforcement.

BUREAU OF COMPETITION
The FTC's Bureau of Competition is responsible for antitrust
activity and investigations involving restraint of trade. The Bureau of
Competition works with the Antitrust Division of the U.S. Department of
Justice, but while the Justice Department concentrates on criminal
violations, the Bureau of Competition deals with the technical and civil
aspects of competition in the marketplace.

BUREAU OF ECONOMICS
The Bureau of Economics predicts and analyzes the economic impact of FTC
activities, especially as these activities relate to competition,
interstate commerce, and consumer welfare. The Bureau provides Congress
and the Executive Branch with the results of its investigations and
undertakes special studies on their behalf when requested.

APPLICATIONS FOR COMPLAINTS

The FTC becomes aware of alleged unfair or deceptive trade practices as a
result of its own investigations or complaints from consumers, business
people, trade associations, other federal agencies, or local and state
governmental agencies. These complaints become known as
"applications for complaints" and are reviewed to determine
whether or not they fall under FTC jurisdiction. If the application does
fall under FTC jurisdiction, the case can be settled if the violator
agrees to a consent order. This is a document issued by the FTC after a
formal—and in some cases—public hearing to hear the
complaint. Consent orders are handed down in situations where the
offending company or person agrees to discontinue or correct the
challenged practices. If an agreement is not reached via a consent order,
the case is litigated before an FTC Administrative Law Judge. After the
judge has handed down his or her decision, either the FTC counsel or the
respondent can appeal the decision to the Commission. The Commission may
either dismiss the case or issue a cease and desist order. If a cease and
desist order is issued, the respondent has sixty days to take all
necessary steps to obey the order or launch an appeal process through the
federal court system.

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User Contributions:

If the purpose of the "FTC is to enforce the provisions of the Federal Trade Commission Act, which prohibits "unfair or deceptive acts or practices in commerce" why did the FTC produce the FTC Franchise Rule that appears to permit and protect unfair and deceptive acts in the disclosure process governing the sale of franchises to the public?

The fatal FLAW in the FTC Rule which appears to permit franchise chain systems to withhold material facts from new buyers concerning the often poor financial performance of startup units within the system has been pointed out to the FTC in public comments for many years. Yet neither the Congress nor the Executive acts to eliminate the flaw and to mandate that the franchisors themselves in the disclosure process provide visibility of unit financial performance statistics to new buyers of franchises and to the investors in the paper of franchise systems.

Obviously, the unit performance statistics of chain systems is highly material to both the buyer of a franchise, the franchisee, and to investors in the franchise chain systems, as well. If there had been visibility of UNIT financial performance within systems, some of the franchise systems who had securitized their businesses and then failed would perhaps not taken as many franchisees and investors down with them when they were liquidated in bankruptcies.

How can the FLAW in the FTC Rule and the little FTC Statutes continue to be rationalized by the FTC?

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